Planning for health care in retirement - PowerPoint Presentation

Slide1

Planning for health care in retirement

Understand spending trends and Medicare when planning

for health care in retirement. Slide2

Topics for today

Escalating health-care costs confront retirees

Planning for health care in retirementSlide3

Worker’s

earnings

68%

Overall inflation

51%

Health-care costs have outpaced earnings and inflation over time

Source: Kaiser Family Foundation, October 2018.

Health insurance premiums

239%Slide4

… and are expected to grow significantly in the future

Source: Centers for Medicare and Medicaid Services, National Health Expenditure Data, 2019.Slide5

Health-care spending increases significantly with age

Source: EBRI, Utilization Patterns and Out-of-Pocket Expenses for Different Health Care Services Among American Retirees, February 2015. Figures represent average out-of-pocket spending annually.

Age 65–74

Age 85 years and older

$4,383

11% of annual

household expenses$6,60319% of annual household expensesSlide6

How much will a couple need today

to pay for health care in retirement?

Cost projections for a 65-year-old couple (present dollars)*

* Dollar figures reflect the present value of total lifetime healthcare costs in retirement. If you calculate those costs based on future value to reflect the total actual amount spent in retirement, couples are expected to spend over $500k.

Source:

HealthView

Services, 2018 Retirement Healthcare Costs Data Report. Assumes premiums for Medicare Parts B, D, and supplemental coverage. Assumes life expectancy of 87 for the male, 89 for the female, and an MAGI income level below $170,000.Slide7

Costs for healthy retirees may be much

higher due to longevity

Lifetime projected health-care costs — total in retirement*

* Dollar figures reflect the future value of total lifetime healthcare costs in retirement.

Source:

HealthView

Services, 2016 Retirement Healthcare Costs Data Report. Based on Medicare part B and D coverage, supplemental coverage, and out-of-pocket expenses for an individual living in IL retiring at age 65. Assumes life expectancy for healthy female is 89 years, for diabetic female 80 years. Healthy 55-year-old female$523,737Diabetic 55-year-old female$267,878Slide8

Few employers offer retiree

health benefits

Among all large firms (200 or more workers) offering health benefits to active workers, percentage of firms offering retiree health benefits, 1988–2018

Source: Kaiser Family Foundation, 2017 Employer Health Benefits Survey.Slide9

The future of Medicare is uncertain

Source: 2019 Medicare Trustees Report.

Medicare

key facts and figures

2008

Beginning of spending more on benefits than payroll taxes received

201860 million people in Medicare2013–2018Health insurance expenditures increased by 3% annually2019–2024Health insurance expenditures projected to increase by 7% annually2026Trust fund (HI) exhausted82 million people on Medicare (projected)Slide10

Long-term care costs

can be staggering …

Long-term services and supports are expensive, often exceeding what beneficiaries and their families can afford

Source: Genworth, Genworth 2019 Cost of Care Survey. Nursing facility assumes private room.

Median annual care costs by type of service, 2019Slide11

Summary of challenges

Increases in longevity means more retirees living longer are relying on health-care services

The demand for health care will continue increasing as baby boomers retire

Long-term care is an uncertain and expensive risk

Retirees in the future will likely rely more on personal savings to meet health-care expense needsSlide12

Becoming eligible for Medicare

Age 65 and eligible for Social Security

If employment was not covered by Social Security, then you paid Medicare payroll taxes while working (at least 40 quarters)

Disabled or other health condition

(e.g., end-stage renal disease)Slide13

Understanding Medicare

Based on 2020 rates.

Part

A (Hospital)

Part B (Doctor)

Part D (Drug)

Generally no premiumNursing care, hospital stays, home health, hospice, limited nursing home care Annual deductible of $1,408 (hospital inpatient)Doctor visits, outpatient procedures, tests, therapy, x-rays, etc.Base premium of $144.60 monthly with a deductible of $198/yr80/20 coverage — no coinsurance for most preventative services

Optional prescription drug coverageOffered by private insurance companies that are approved by MedicareSlide14

Medicare Part B premiums increase

at higher incomes

Source: Centers for Medicare & Medicaid Services. Income based on Modified Adjusted Gross Income (MAGI) which includes tax-exempt interest income. MAGI is based on income reported on the tax return from two years prior (e.g., for 2020, the 2018 tax return would apply).

Singles

Couples

Monthly Premium

< $87,000< $174,000$144.60$87,001–$109,000$174,001–$218,000$202.40$109,001–$136,000$218,001–$272,000$289.20$136,001–$163,000$272,001–$326,000$376.00$163,001–$500,000$326,001–$750,000

$462.70> $500,000> $750,000$491.60Slide15

Enrolling in Medicare

Initial

enrollment period (IEP)

7-month period that

begins 3 months before the month of your 65th birthday and concludes 3 months after

If you file during the first 3 months, coverage begins on the first day of your birthday monthIf you file during your birthday month, coverage begins the next monthIf you file anytime during the last 3 months, coverage begins two months laterNo contributions to HSA for those enrolled in MedicareGeneral enrollment period (GEP)January through March each year, coverage begins July 1Late penalty may applySpecial enrollment period (SEP)Applies to those who are covered by an employer group plan (more than 20 employees)Also applies if covered by a spouse through their group planCan sign up for Parts A and B at any time or within 8 months of leaving the group plan to avoid late enrollment penaltySlide16

Other enrollment periods

Open enrollment period (OEP)

October 15 through December 7 every year to enroll/change Medicare Part D plans or enroll/change Medicare Advantage (MA) plans

Medicare Advantage disenrollment period (MADP)

January 1 through February 14

Medigap

open enrollment periodLasts 6 months and starts the month you reach age 65 and are enrolled in Medicare Part BNo extra cost for those with pre-existing conditions if you enroll during this periodSlide17

Late enrollment penalties may apply

Applies for as long as you are enrolled in Part B

Your monthly premium for Part B may go up 10% for each full 12-month period that you could have had Part B, but didn't sign up for it

The penalty clock starts ticking at the beginning of the month after your 7-month initial enrollment period (IEP) expires, and shuts off on the final day of the annual general enrollment period (GEP) in which you sign up for Part B (regardless of the actual date you signed up)

Medicare Part D penalty applies if there is a lapse in creditable prescription drug coverage exceeding a 63-day period. The penalty is 1% of the Medicare Part D base premium ($34.10 for 2016) for each full month you were eligible but went without coverage and did not have other, creditable coverage. Note that there is also a late enrollment penalty applied to Medicare Part A for recipients who were not eligible for free premiums and enrolled late.Slide18

Supplemental coverage options

Medicare Advantage (Part C)

Medigap

policy

Private alternative to Medicare Parts A and B — must have at least equivalent benefit, regulated by Medicare

Generally offers additional benefits, such as vision, dental, and hearing, and many include prescription drug coverage

Eliminates some Medicare co-payments and deductiblesPlans have service areas — most coverage offered through an HMO or PPO networkOffered through private insurance companiesExtra insurance that will cover certain expenses not covered by Medicare such as deductibles, copays, and uncovered servicesPremiums will vary by area and are paid separately from Medicare Part B and D premiumsSlide19

Two paths for coverage

Original Medicare

Medicare Advantage

PART A

(hospital)

PART B

(doctor)Need prescription drug coverage?PART D(drug)Need supplemental coverage?MedigapPART C(Combines Medicare Part A, Part B, and usually Part D)Typically operates like an HMO or PPOSlide20

Some considerations when planning

for long-term care (LTC)

Based on current and family health factors, is the risk of needing long-term care higher?

Is there a family member or friend nearby who could provide care?

Talk to a professional about exploring LTC insurance and determining the factors in selecting the right coverage

What’s the right benefit amount?

How do elimination periods work?When do benefits trigger? Are different levels of benefits covered? Is there inflation protection?What is the financial rating of insurance company?Slide21

Bridging the gap until Medicare

COBRA

Allows you to maintain access to your group plan after a “qualifying event” — premium is higher and coverage usually expires after 18 months

Spouse plan

May be the most cost-effective option for those who have a spouse participating in a group plan

Marketplace

Public marketplace (ACA health-care exchange) or private option. ACA exchanges offer subsidies (based on income) through premium tax credits, no denial for pre-existing conditions, but wide variation on cost. Specialty coverageShort-term plans lasting less than 1 year that typically provide catastrophic coverage.Slide22

Planning considerations for health care in retirement

Consider tax-smart strategies

Utilize Roth strategies to create tax-free income in retirement

May help avoid larger Medicare premiums

Consider a Health Savings Account (HSA) while still working

Factor in health-care expenses when planning for income in retirement

Match income streams (including guaranteed income) to fund recurring health-care expenses such as premiumsMaintain emergency health savings fund for non-recurring health expensesConsider delaying Social Security to create a larger monthly benefit if you live longerSlide23

This information is not meant as tax or legal advice. Please consult your legal or tax advisor before making any decisions.

For informational purposes. Not an investment recommendation.Slide24